5) Use a supply and demand diagram like in the slide titled "From monopoly to Cournot duopoly" to explain conceptually the supply decision that leads to a Cournot Nash equilibrium, and why it has lower price and total profits than the collusive (monopoly) supply. Optionally you can also use precise numbers: assume market demand behaves like P=36-3Q, (Q=Q1 +Q2), and the constant marginal cost is MC=18, then solve for price and profits, both under collusion and Cournot competition. Hint: you will need to solve for each oligopolist's supply decision contingent on that of the other, so-called best-response functions. You may consult the Perloff excerpt for the individual steps.

5) Use a supply and demand diagram like in the slide titled "From monopoly to Cournot duopoly" to explain conceptually the supply decision that leads to a Cournot Nash equilibrium, and why it has lower price and total profits than the collusive (monopoly) supply. Optionally you can also use precise numbers: assume market demand behaves like P=36-3Q, (Q=Q1 +Q2), and the constant marginal cost is MC=18, then solve for price and profits, both under collusion and Cournot competition. Hint: you will need to solve for each oligopolist's supply decision contingent on that of the other, so-called best-response functions. You may consult the Perloff excerpt for the individual steps.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter25: Government And Product Markets: Antitrust And Regulation

Section: Chapter Questions

Problem 12QP

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Similar questions

For many years, the Justice Department has tried to break up large firms like IBM, Microsoft, and most recently Google, on the grounds that their large market share made them essentially monopolies. In a global market, where U.S. films compete with firms from other countries, would this policy make the same sense as it might in a purely domestic context?
Consider the curve in the figure below, which shows the market demand. marginal cost, and marginal revenue curve for firms in an oligopolistic industry. In this example, we assume firms have zero fixed costs. Suppose the firms collude to form a cartel. What price will the cartel charge? What quantity will the cartel supply? How much profit will the cartel earn? Suppose now that the cane] breaks up and the oligopolistic firms compete as vigorously as possible by cutting the price and increasing sales. What will be the industry quantity and price? What will be the collective profits of all firms in the industry? Compare the equilibrium price, quantity, and profit for the cartel and cutthroat competition outcomes.
Is it true that a merger between two films that are not already in the top four by size can affect both the four-firm concentration ratio and the Herfindahl-Hirshmau Index? Explain briefly.
Is it true that the four-firm concentration ratio puts more emphasis on one or two very large films, while the Herfindahl-Hirshmau Index puts more emphasis on all the films in the entire market? Explain briefly.
3.- (From problem 5.3 in the textbook) A nightclub manager realizes that demand for drinks is more elastic among students, and is trying to determine the optimal pricing schedule. Specifically, he estimates the following average demands: • Under 25: qr = 18 − 5p • Over 25: q = 10 − 2p The two age groups visit the nightclub in equal numbers on average. Assume that drinks cost the nightclub $2 each. (a) If the market cannot be segmented, what is the uniform monopoly price? (b) If the nightclub can charge according to whether or not the customer is a student but is limited to linear pricing, what price (per drink) will be set for each group? (c) If the nightclub cannot charge according to whether the customer is a student or not, but can set a (common) cover charge and a (common) price per drink (which we assume equal to $2), what two-part tariff will it choose? (d) If the nightclub can set a separate cover charge and price per drink for each group, what two-part pricing schemes will it…
3. In a market with demand Q = 780 - p, there are 3 identical firms, A, B and C; each with a total cost function TC(Q) = 3Q^2. Calculating the market price under each of the 5 scenarios below, rank/order the Consumer Surplus in each scenario (don’t calculate each CS; just rank them); (i)They compete in quantities with each other (Cournot-Nash equilibrium) (ii)They collude as though they are all plants of the same single multi-plant monopoly. (iii) B and C act as two plants of a single multi-plant monopoly “B+C”, which competes in quantities (Cournot competition) against A. (iv) B and C jointly form the fringe supply and A is the dominant firm in the dominant firm model (v)They act as perfectly competitive firms -as if trying to maximize total surplus and minimize DWL- that is, their joint MC serves as the “market supply” for the competitive market.